0% APR convenience check arbitrage: decadent or shrewd?
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Poast new message in this thread
Date: March 2nd, 2015 1:03 PM Author: Glittery Fishy Windowlicker
Credit card leverage can work if you're in a certain tax bracket.
However, assuming that you're holding P2P notes a taxable account, beware of the spread between the tax rate on interest (ordinary income, IIRC), and the tax on defaulted notes (capital losses).
You can turn about 3K of these capital losses into ordinary losses to offset income, but beyond that, your returns may not reflect the after-tax reality.
(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#27416553)
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Date: March 2nd, 2015 1:58 PM Author: Glittery Fishy Windowlicker
shrewd
i've always felt that my realized cap gains from stock dividends would fuck with my LC returns
at some point i'd love to sit down and create a model that optimizes LC returns for taxable accounts rather than for IRAs. presumably this would tilt toward more lower risk loans w/lower default rates at the cost of lower pre-tax yield.
(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#27416841) |
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Date: March 2nd, 2015 3:28 PM Author: Glittery Fishy Windowlicker
That's true but the yield on diversified high-risk loans in an IRA may outweigh any deduction that you're losing. It's unclear to me that the same principal applies to a taxable account.
To take an extreme example, suppose you invest a total of $100 in an IRA -- $10 in 10 one-year loans, each bearing an interest rate of 50% (none of these are realistic to LC or prosper, but this is just to make the numbers easy).
3 notes default and you never get payment. So you lose $30. You get $70 back in principal from the remaining notes, plus $35 in interest from those notes.
In an IRA (let's assume Roth for convenience), your return would be a gain of $5 (5%).
In a taxable account, assuming 30% tax bracket, your interest return would be .7*35 = $24.5 in after-tax interest, plus a capital loss of $30, that you can use or carry to later years -- let's suppose you can use it all to immediately offset cap gains at a recovery rate of 20%, or $6. Your after tax return is $24.5+6-30+70 = 70.5, i.e. a negative return.
Now let's say that you do the same thing, but you diversify among 10 lower risk, lower interest loans. None of the loans default but they each only pay 2%.
The IRA would yield 2%, which is << the high-yield/high-risk scenario of 5%. The taxable account would yield 1.4%, which is >> the negative return in the high-yield/high risk portfolio.
This ignores the 3K shelter that we discussed before and my head is totally foggy right now but it is not clear to me that a taxable account should use the same assumptions as an IRA.
(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#27417304) |
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Date: March 8th, 2015 1:26 AM Author: Glittery Fishy Windowlicker
Interesting, how are you getting the original loan for the balance transfer?
I am going to test the new FolioFN feature from the Robot. One nice thing about buying secondary market notes is that there is no need to wait for them to be issued so they start paying right away.
Amex Serve is very useful for extracting money without fees from 0% APR cards. I've never used Bluebird, but I gather that they're similar. The nice thing about Serve is that you can coordinate everything online. Unfortunately it's not scalable since you're limited to 1K per month. If only it were more than that . . .
(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#27450795) |
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Date: April 6th, 2015 4:43 PM Author: Glittery Fishy Windowlicker
i think you would like them a lot.
they are one of the "go to" places for traders, especially for options.
as i understand it, portfolio margin on certain ETFs may allow for tremendous leverage. i would not use anywhere near max leverage because i am wary of margin call. but, large leeway in maintenance margin substantially reduces the risk of margin call.
(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#27633452) |
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Date: April 6th, 2015 5:16 PM Author: Glittery Fishy Windowlicker
IB is a discount broker, so they offer rates that are closer to the federal funds rate, i.e. the rate at which federal banks borrow from one another.
Since the margin loan is secured by collateral in the margin account, it is not really that risky for IB to loan out at under 2% (though not riskfree, as the recent currency flashcrash shows) and IB can still make a substantial amount doing so.
IB is very highly automated so one potential trade-off is that they will liquidate your account automatically upon a margin call. I.e. when the call comes you must in fact immediately deposit money instead of puttering around for a week like in the old days. But frankly I am not sure that other institutions would give you any more flexibility.
(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#27633766) |
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Date: April 6th, 2015 1:44 PM Author: Glittery Fishy Windowlicker
doesn't seem like much trouble/effort to me
1. apply for credit card
2. get check, push a few buttons to fund an LC account
3. set credit card to autopay
(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#27632005) |
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Date: April 25th, 2015 4:43 PM Author: Glittery Fishy Windowlicker
wasn't very lucrative, only balance transferred 5K. they insisted on sending the check to an actual lender, and it is simple/free to generate a policy loan off my insurance policy, so i just went that route. as a heads-up, the chase slate reps are somewhat confused by the notion of balance transferring to anything other than another credit card company, so you'll have to talk with their manager about this if you decide to do something similar. i will have to look into the citibank card situation, thanks for the tip.
i have decent credit but my credit score has been temporarily driven down by opening a bunch of credit cards recently. in general, i treat all funds as fungible, so whether i just use 0% APR cards for my daily expenses or actually balance transfer, is pretty much the same since i barely hold any cash at any given time.
btw, this is getting somewhat off topic but since you have an interest in leveraged investments, i thought i would mention that the cornerstone of my strategy is to use blended whole life insurance as a cash equivalent to cover my debts in case something goes awry and i don't have enough cash to pay off my credit card debt (which is around 20K now). i've found that holding cash within the whole life policy is quite effective as the IRR over a long period of time should be around 5% (nontaxable) and that accessing the cash is easy and only accrues a penalty of around 50 basis points.
(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#27758734) |
Date: July 1st, 2015 11:21 AM Author: Lake shitlib Subject: July 1 update
Credit card balance (0% until July 1, 2016): $14,971.73 ($478.27 paid) including the $450 fee.
Investment balance: $15,588. I've now exceeded the $15,450 cost of the $15,000 loan, so it's profit from here on out. All the payments are being reinvested as soon as possible when they come in (I'm now focusing on stub-length notes on the secondary market for reinvestment, which are less plentiful).
Currently the average interest rate on the notes I'm holding is still 17.8%. I'll be happy with 10-11% returns overall after defaults.
Of 658 notes I've bought, 28 were paid off early, 18 are currently late (1-30 days) and 612 are current. I've still yet to have one move past the second stage of lateness before recovering.
(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#28237791) |
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Date: May 3rd, 2016 12:51 PM Author: Territorial church
you mean 4.8% return in 15 months since you had to pay 3% to borrow the money? so like 4% return? that's...fine, i guess
lol @ counting losses from your investment as part of your profit
but man if it makes you happy, keep on keeping on
(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#30397482) |
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Date: March 1st, 2017 10:47 PM Author: Glittery Fishy Windowlicker
lending robot's last email was lulzy with the negative 200 trillion projected return
i've continued this experiment indirectly in the sense that i have only 1K in free cash in my checking account, and everything else spread out over roughly 1M exposure to S&P through equity+ 200K margin loan, about 30K in lending club/prosper, and some other assets.
returns have tanked recently but have been acceptable so i will keep autoinvest on.
(http://www.autoadmit.com/thread.php?thread_id=2799163&forum_id=2#32732434) |
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